Everyone wants high returns, and yet, every single conference or seminar I’ve been to neglects to mention the one investment that is the most lucrative and high-yielding investment out there. It is the foundation that Warren Buffett, Amancio Ortega, Ng Teng Fong (Singapore’s once richest man), and other billionaires use which is almost NEVER talked about. Yet without it, they definitely would not be rich; instead, they would be among the high-earners who ended up broke or bankrupt. So what is their secret?

What’s Their Secret?

Saving, more specifically, Not Spending. An average saver will do far better than the so-called best investor who doesn’t save – every time, hands down! For example, if you had $100,000 to invest every year, and you could say, earn 10% on that investment, it is essentially equivalent to saving (not spending) $27 a day, or just under $200 a week.

But most people, even those who earn in excess of $200,000, do not have $100,000 to invest. The vast majority of people invest less than $20,000 a year, and you can also bet that their investments don’t earn anything near $10,000 per year (or $27 a day, equivalent to investing a sum of $100,000 at 10% per annum).

How easy it is to save $27 a day, or $200 a week? You might think it’s hard to save $200 a week, but I’ve known average-wage people who can easily spend that amount on a salon, spa day, or fine dining. Or they buy a $1000 tech gadget at the end of each and every month. Yet these people are no happier or healthier than people who don’t spend that amount.

It all has to do with a mindset shift. You need to ask yourself, “Is that one-off expenditure worth a 10% return?”

Chasing Yields Instead of Not Spending

There are people who chase yields and do a whole bunch of crazy things to try to achieve the highest yield possible. In fact, there are even paid seminars where so-called experts will teach you how to achieve high yields at any cost – and these costs are indeed high! They include their seminar fees, commissions, computer trading programs, your time, your energy, and possibly your sleep and sanity.

Show me the after-tax investment returns of most “savvy” investors, and I can tell you how they’d be able to achieve that by just living more frugally. And they would probably be much happier and healthier too.

What Seminars Will Likely Never Teach You

You’ll likely never hear of a seminar that tells you the power of growing your net worth by simply not spending the money you earn. Many financial advisors I know have not mastered nor even considered this technique. They instead say the only way to financial freedom is through investments – investments that coincidentally pay them a nice commission. They are, what I refer to as the “Lindsay Lohan’s” of wealth management.

Why Lindsay Lohan? I had grown up watching her as a child actor. She had been working since the age of 10, bagging lucrative deals and opportunities that many of us would die to have. Yet, fast forward to present day (2 decades later) and she only has $500,000 as her net worth. To compare that to a Singaporean who earns $3000 a month, just his CPF alone (if he keeps it in the SA/MA, which earns 4%) can grow to $500,000 in 20 years.

From commercials, to television shows, soap operas, and movies, Lindsay Lohan was once among the highest paid actresses. Did she have financial advisors? Yes, probably an entire team of them. Did she live a high-maintenance lifestyle? Definitely. She could have done away with her financial advisors and beat any “professional trader” by just not spending the millions that she already made (just in 2005 alone, she was reported to have made £11 Million).

Where High Earners Fail

I’ve met plenty of doctors, lawyers, and bankers who earn income in the top 10% tier of all income earners, but because of their high spending and high-rolling lifestyle, they (like most people) have nearly nothing saved for emergencies or retirement. It is all too common for people who earn more, to also spend more. And this is where they fail. They are “rich” but they are also broke. They don’t realise just how easy it is to spend and waste money.

Here is a side-by-side comparison of 2 Singaporeans who shared with me their financial details. The top figures are based on real data that has been rounded for ease of reading and calculating. Also, for the sake of simplicity, CPF mandatory contributions have been removed. The bottom shows a hypothetical scenario where the High-Roller is also an “expert investor” while the Saver is a “slow-and-steady, safety-first” investor. Here’s where they end up.

The High-Roller had high expenses because he had not 1 but 2 condos which he was paying for (both purchased at the height of the housing bubble). The Saver bought a BTO (which she now owns free and clear). The Saver earned only one-quarter of what the High-Roller earned, yet the amount she managed to save per year was more than double. And just having more principal to invest can beat a high hypothetical yield of 10% year-on-year for 20 years.

Some may argue that the High-Roller, as a result of his spending, had more tangible assets and experiences. While that may be true, he also had more stress, more sleepless nights, and perhaps also more health and relationship issues just to maintain his high-rolling lifestyle and consistent 10% returns on his investments. Also, how much would the High-Roller need to save to continue his/her lifestyle in retirement? The Saver will be financially free long before the High-Roller ever will.

So what if so-called Investment Guru X has a plane? Does he actually have time to enjoy it? Does the cost of maintenance, fuel, parking fees, landing fees, insurance, interest on the loan to buy the plane, and burden of ownership outweigh its benefits? A better question would be is the annual cost (which according to this article is around $625,000 a year) better than having earned 10%+ on a $6 Million investment? I think not. Frugality always beats investment savvy.